Apple: Make a 13-Inch, 64-Bit iPad ‘Convertible,’ Urges Barclays

By Tiernan Ray

Barclays‘s Ben Reitzes today offers some thoughts on the 64-bit question, namely what it means that Apple (AAPL) has put 64-bit processing capabilities into its latest chip that runs the iPhone, the “A7.”

Reitzes, who rates Apple shares Overweight, with a $540 price target, thinks an important function of A7 could be to put it in the iPad line, in order to beef up the capabilities of the tablet.

As he sees it, investors have “almost forgotten” about the iPad, and the Mac, because neither product line has shown any upside at the moment. Everyone’s focused solely on the iPhone.

“The iPad already was a transformational “second product” in 2010 through 2012, he writes, “and could be again in our view–but the product must change given new competition.”

By adding 64-bit support, “We believe reviving the iPad could be a way to reaccelerate earnings growth since a more useful iPad could expand the TAM [total addressable market] by tens of millions” of units, Reitzes argues.

Reitzes explains how a 13-inch or larger iPad, with bigger memory support via 64-bit processing, could could create a new category of productivity machine:

Apple has in fact already told us the direction the iPad is moving in – when it launched its latest iPhone with a 64-bit processor and by giving away iWork with it. We believe that 64-bit is really only required in devices that carry 4-5GB of RAM. What are the chances iPhone users really need either of these features? They don’t but iPad users do—and will. We believe that Apple is seeding its iOS install base for a real second run at the PC market with an iPad/Convertible type product that does what the Surface was supposed to do. If accurate, this product should include a 64-bit processor, so now is a good time to have developers start making apps optimized for the new chips. Also, the iWork suite is a functional stand-in for Microsoft (MSFT) Office at a consumer level [...] It is possible that Bob Mansfield, now in charge of “special projects,” was likely persuaded by Tim Cook to stay to try to see this vision through. To that point, within a year and a half we believe Apple would be well served to explore the addition of larger screened iPad to its line up, perhaps of the 13 inch variety. The key is that this product could finally be the one to include a real Apple-made keyboard cover accessory with a track pad. The company even has patents for such a cover with solar panels to keep it charged and has recently listed employment roles for workers with a background in solar engineering. The thinking around this device also dovetails nicely with our views that Apple may be working on merging of more features between iOS and OS X. However, given iCloud integration, the two OS’ have more in common now anyway. The whole iOS app ecosystem, extra long battery life, ultraportability and user familiarity could be more compelling than a Mac if Apple made a true effort. And we believe a larger screened iPad would be a much better PC replacement than current tablets, including the Surface, and really be able to take on higher end tasks and start another wave of notebook cannibalization [...] To be compelling, we believe that Apple would still need to sell iPads device needs to retail between $600-800, which would still be higher than the average tablet (estimated about $300 ASP excluding Apple) but around the ASP of the global notebook PC. With respect to the enterprise, we believe the device we describe could more meaningfully substitute for notebooks at a price point that is more competitive with traditional PCs – but through BYOD programs more than direct purchases from corporate IT departments. We believe companies who are now spending on duplicative devices – both PCs and tablets – could be attracted by the potential to cut spending in half through only purchasing one device.

Reitzes thinks such a device would cannibalize the Mac and the iPad Mini, but also take away business from the PC market:

Over the long term, we believe the device could ultimately cannibalize Mac notebooks and smaller iPads to a degree. However, these categories are already tiring. Last quarter, Macs as a category accounted for 14% of Apple’s revenue, posting a -7% y/y decline (units basis). Tablets also have started to feel the effects of saturation, with the iPad declining -14% y/y and -25% q/q. Even though the products are still positioned at the high end of the market, both the Mac and iPads have really lost their growth profile to smartphones. We believe a convertible strategy could change that dynamic by attracting more of the consumer wallet again. Recall that Apple has traditionally not been overly concerned with cannibalizing its own product line in order to offer customers its perception of the “right” product – and we believe that could be the case here, even to the detriment of longstanding categories. We do not believe that the Macbook Air is sacred and the company could look to cannibalize it should the alternative provide greater TAM [...] Notebooks have been under considerable pressure for some time now – unable to compete with the proliferation of smartphones and tablets at lower price points. Last quarter, the notebook market declined -12% y/y (flat q/q) with the weakest performance in Western Europe (-25% y/y) and Japan (-16% y/y). From our standpoint, we believe an excellent iPad with cover device could have a disruptive impact on the NB market. We have usually assumed tablets disrupted PCs by 25-30% from a cannibalization rate – it would not surprise us if the magnitude of disruption were also similar here, pointing to further downside to our notebook estimates laid out below.

Add a Comment

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comment

There are 11 comments

OCTOBER 8, 2013 7:51 P.M.

Anonymous wrote:

Why is a securities analyst giving product advice?

13 inch ipad convertible? No one wants that. Ask Microsoft about that. Too big to be a useable tablet, too compromised for a laptop. A regular ipad with a Logitech keyboard ($90) and sugarsync does the job

OCTOBER 8, 2013 8:12 P.M.

Frank wrote:

Perhaps Apple should make a docking device/13" screen and keyboard for the 64-bit iPhone that would have solar recharging and extra memory. In other words build the device you describe but use the iphone at the core

OCTOBER 8, 2013 8:29 P.M.

Ron wrote:

Another dope heard from

OCTOBER 8, 2013 8:41 P.M.

Dee wrote:

@Ron, hilarious... and may be true.

OCTOBER 8, 2013 9:18 P.M.

EricSRulez wrote:

Another installment of the short attention span theater--this guy got his memo for the iPads just hours after penning junk like "nobody remembers the iPad" after last month's "the iPhone is dead" just days before apple hits the 9m unit grand slam out of the park. Will these guys never learn?

OCTOBER 8, 2013 9:18 P.M.

Max wrote:

Isn't it amazing how an investment bank analyst feels free to give the most successful technology company in human history sales and marketing advice?

OCTOBER 8, 2013 9:54 P.M.

Ivan Hallworth wrote:

Its a bit ironic, how having originally invented - perhaps being fortunate in being first to define the whole Personal Computer market, and then very much giving the lion's market share away to others (Apple versus Microsoft PC), that Apple once again now have a stategic golden opportunity to make a winning end rerun at the PC market (or not!) and to capture the lion's market share of the PC market along with new device markets?

Premium AND value? - Even with the rise of others.

Your idea is smart interesting and potentially transformational: a kind of iPad/MacBook Air iPad 'convertible' to potentially replace two? Surface done right perhaps?

Two into one will go plus the whole is worth more than the sum of the parts perhaps?

Very much like Apple's original MacBook Air winning concept transformational approach and now with touch!

But would Apple do it? Why? Why not?

No doubt potentially "canibalistic" to some other Apple lines, it may well be a transformational idea in terms of being very much more "canibalistic" to others rather than to Apple themselves and such an approach could help Apple regain strong competitive market position against traditional PCs and usurp the rise of others in Apple's now shared markets?

To do this they surely must learn more from their past PC/device marketshare positioning mishaps and think more closely and holistically about Apple customer total lifetime value experience as seen through their customer's eyes and feelings and be kinder to their customers on the upgrade value paths?

Looking at the whole customer premium lifetime value market position that they lay claim to - the cycles of innovation are perhaps just a bit customer unforgiving in terms of the customer's overall own value position? Flurries of upgrades are good only up until a point. Perhaps this is also part of the brake on Apple and the stock's growth? Apple need to conolidate the experience and having landed it, then expand it.

Its becoming more prevalent for Apples traditional customers to shun updates for the sake of updates.

Once Apple really see the whole Apple customer experience, not just in terms of immediate point design experience, but through the overall lifetime Apple value experience directly through their current customer's eyes, feelings and pocketbooks, and they think more carefully about real customer market value points, they'll be no stopping them.

Premium AND value are not necessarily mutually exclusive and perhaps there is a better definition of value other than the binary convenience of labelling it Junk? There is surely a happier Apple market positioning that would help Apple win more and help their customers to win even more against the compeition?

Without this, long term, Apple perhaps will still leave themselves open to their current markets being usurped by others?

Positioned right, what you are suggesting could help find compelling new whitespace market and new winning customer value points in the iPad/Mac space and help Apple win increasing and important long term PC and pad market share from others and help solve the separate iPad and Mac market maturity.

A surface approach for others really didn't work but thats not to suppose a surface like convertible for Apple done in the inimitable Apple design style wouldn't be outstandingly successful?

It needs a bold leap and it could be pre-market tested?

Coupled with the magnificent Enterprise IT market positioning opportunity within Apple's grasp with their forthcoming Mac Pro a potential "slam dunk" with an iPad/MacBook Air "convertible" at some point in the future as a PC and other device "killer' would surely send Apple's sales profits and stock price soaring?

Either way, Apple must continue to choose most carefully and well and lets hope they continue to chose well and shine more light on the computer IT market.

With the consumerization and continued commoditization of Enterprise IT by getting consumer IT strategy better they may gain increasingly well in Enterprise IT and Enterprise IT BYOD. Are Apple consistently leaving untapped value on the table to their competition because of their continued "historic" market approach strategy?

Get it right with some small changes and transformational ideas as you are suggesing and their sales profits and stock would surely be sent soaring?

Apple perhaps have a golden opportunity ahead that is theirs for the taking. Will they do it?

OCTOBER 8, 2013 10:26 P.M.

Buysider wrote:

Ben Reitzes has no credibility as an analyst.....with no money making ideas....he should get out of this investment advice business. Last thing apple needs...is a product advise from a known idiot.

sorry to be rude.

OCTOBER 8, 2013 10:52 P.M.

Anonymouse 2 wrote:

Indeed Funny how a financial guy is trying to dictate Apple future direction...

Does anyone want a keyboard? I mean really, how many people have bought on to the idea to return back to older technology... heck, why not re-design a trackball and connect it via bluetooth... a genius idea... for 15 years ago maybe... hey Reitzes, time to turn down your Sony Walkman and start wearing newer pants that are not parachute pants... and while you're at it trim your mullet...

OCTOBER 9, 2013 3:26 A.M.

Just for Ben wrote:

The reason for a 64 bit iPhone that'll use 4-6 GB of Ram memory is to facilitate other wearable devices like the iBarclay's analyst iDigital ButtPlug. It's programmable so you can have the device do things like massage your ego every time you say the magic word: Apple! After that. You'll naturally tend to target the stock at least 25% higher. $540? C'mon! Gives us at least a 640.

OCTOBER 9, 2013 6:31 A.M.

Market Mayhem wrote:

Apple can only focus on one thing at a time. It's definitely not a company like Samsung that can juggle dozens of product projects at once. It seems if Apple works on a project it takes resources from other teams and then things come to a crawl. It's funny how the iPad line isn't really worth very much to investors when it really seems like a relatively lucrative business compared to how other computer companies are doing selling laptops and such.

I think most of you people should give up on Apple's share price going up more than a few percent. The big investors are too much in love with companies like Tesla, Netflix, Amazon, LinkedIn and Priceline. Those companies don't even have to turn profits to make their share prices climb to the stars so why would they waste time with a company like Apple. Apple can make tens of billions of dollars in revenue, but it never reaches shareholders. Tim Cook, Apple and Apple shareholders are going to get screwed again this coming quarter. A whole freaking year has gone by and Apple hasn't done a damn thing to take the share price out of the red. Apple shares are being outperformed by every tech stock you can imagine in the supposed post-PC era. Apple has to be one of the most unattractive investments going being even inferior to Microsoft and Cisco.

The analysts are always finding fault with Apple no matter what Apple does. Do you think analysts are poring over Amazon like they do Apple? Or always advising Jeff Bezos how to run his company? Unlikely. Amazon doesn't even have to report Kindle sales. Jeff Bezos can simply say something like, "Kindle sales are terrific" and investors pour more money into the company. Apple is a totally messed-up stock. All that overseas reserve cash and Apple can't figure a way to boost the share price more than a few percent in the course of an entire year. Pathetic. If Amazon were to put a 64-bit processor in their Kindle Fire, the stock would probably double. With Apple, the stock goes down because everyone says a 64-bit processor is useless. Tim Cook just doesn't know how to excite investors. He has a negative Reality Distortion Field.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.